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Megaupload's Kim Dotcom: Inside the Wild Life and Dramatic Fall of the Nerd Who Burned Hollywood

He wanted to be the next Steve Jobs (and talked about starring in a reality TV show). But the outrageous ex-hacker and self proclaimed Dr. Evil, who collected yachts and $400,000 supercars as his file sharing website amassed 180 million users, faces 50 years in prison as showbiz braces for the nastiest piracy fight ever.

Still, some believe Megaupload and Dotcom were unfairly singled out among an array of global cyber-lockers -- services that offer storage and remote backup of a user's files, which often can be accessed and shared (and shared again) by other users. After all, the government's track record on prosecuting large online piracy operations is scant -- previous file-sharing services such as Napster and Grokster were dismantled after private parties (not the government) went after them for copyright infringement. The Dotcom arrest came on the same day the U.S. House Judiciary Committee tabled the Hollywood-supported Stop Online Piracy Act, which would have greatly increased the government's powers to target infringement overseas. Ira Rothken, one of Dotcom's U.S.-based attorneys, tells The Hollywood Reporter that he believes his client was targeted by the Obama administration as a "favor" to the entertainment industry while the president let the SOPA and companion PIPA legislation go down in flames. "[Dotcom] innovated in a way that brought unfair attention from Hollywood," Rothken says. (While Megaupload might have been a disruptive force in the content distribution business, it isn't clear how the service was any more innovative than legitimate cyber-lockers or more nefarious operations that have made a business of trafficking pirated material. The Department of Justice did not return phone calls seeking comment.) The government's pursuit of criminal action against Megaupload has rattled the legal community. "It was shocking," says Michael Elkin, an attorney who represented video-sharing site Veoh in its successful defense of a 2007 lawsuit by Universal Music Group. "The government has taken some action against physical piracy in the past, but to see them crack down on an online site, during the midst of the SOPA debate, caused many people to turn their heads and take notice."

For some, the Megaupload takedown was notable because Dotcom gained legitimacy by aligning himself with Hollywood stars and A-list musicians who, by showing up in a Megaupload music video, appeared to give his service their tacit approval. On Dec. 9, six weeks before Megaupload was shut down, Dotcom released a glossy pop video in which a bevy of recording artists and other notables -- including Sean Combs, will.i.am, Jamie Foxx, Alicia Keys, Snoop Dogg, Serena Williams, West and Kardashian -- praise Megaupload. The professionally produced tune features Dotcom boasting of the service's 1 billion users, while Combs tells listeners he uses Megaupload "cuz it's fast." Will.i.am notes, "When I gotta send files across the globe, I use Megaupload." Between testimonials, the chorus rasped by Grammy-winning R&B singer Macy Gray demands, "M-E-G-A, upload to me today/Send me a file."

When the "Mega Song" video went viral, many of those featured in it quickly disavowed any relationship with Megaupload, saying they were unaware of the company's business practices. But online, the video and its cavalcade of stars gave the impression that Dotcom was aiming to cross over into the mainstream media business and even a music career. "His plan was to create a more artist-friendly distribution platform where the creators would get paid more than what they do when Apple sells their product," says Batal. In January, as Megaupload was about to be shut down, rapper and record producer Swizz Beatz was negotiating to become the company's CEO, a spokesman for the musician confirms. (After the indictment, those talks were cut off; Swizz Beatz, who is married to Keys, declined comment.)

Megaupload, of course, was never so audacious as to advertise that users could download pirated content from its servers. But the company allowed users to share files they uploaded to the service and even incentivized them to contribute popular copyrighted content with the promise of monetary rewards, according to the indictment. The Department of Justice has alleged that the company generated $25 million in ad revenue and more than $150 million in subscription fees during its existence. Had Dotcom turned the venture into a legitimate enterprise -- as he had suggested to Batal -- it's unclear how the businessman would have structured payments to artists, let alone cut deals with the corporations that control the content he is alleged to have illegally distributed. "If the business model [adopted by entertainment companies] would be one where everyone has access to this content at the same time, you wouldn't have a piracy problem," Dotcom said March 1 on New Zealand's Campbell Live news program, his only lengthy television interview after he was released on electronically monitored bail in February. "It is really, in my opinion, the government of the United States protecting an outdated, monopolist business model that doesn't work anymore in the age of the Internet." The U.S. government will need to prove that Megaupload is not protected by a provision in existing copyright law that shields digital services that seek to remove infringing material from their networks. For that reason, the case could be the single biggest prosecution of a copyright infringer and one that could impact the law for years.

Anthony Falzone, a lecturer at Stanford Law School's Center for Internet and Society, believes the government's case against Megaupload is premised on an aggressive extension of U.S. copyright law that seeks criminal penalties -- rather than the civil remedies used against Napster and Grokster -- that could stymie innovation. "It is going to be a big landmark for entrepreneurs, investors and anyone thinking of creating digital distribution platforms," Falzone says. For example, Pinterest, a pinboard-style social photograph-sharing service that has exploded in popularity this year, could be viewed as a platform for the dissemination of copyrighted material, even as it continues to shape itself. "It creates tremendous risk if your platform is used for the wrong reasons."

Publicly, Dotcom has long held that legal advice he received led him to believe he was on safe ground. "I'm no criminal," he said in the March 1 TV interview. "We can't be liable for actions of third parties. As long as we follow a regime of taking things down that are reported to us, which we have done over all these years, we are protected, according to the law." Dotcom also said in the interview that no film studios or record labels had sued him for copyright infringement or even sent him a cease-and-desist letter. Through his attorneys, Dotcom declined THR's requests for comment.

Even as he protests his innocence, Dotcom has become a poster child -- and a Robin Hood of sorts -- for the anti-establishment, thanks to his extravagances and cartoonish, danger-seeking persona. Those searching for Megaupload online might come across pictures of Dotcom in dark sunglasses racing a tricked-out Mercedes-Benz coupe, eating a large hunk of meat off a spit, dancing aboard the yachts Amnesia and Golden Odyssey, wielding a shotgun on a duck hunt and sitting in an oversize bathtub fully clothed with scantily clad women at his side. To complete his nerd-hero persona, Dotcom was the No. 1 Call of Duty: Modern Warfare 3 player in the world when arrested, and many online images show him playing video games. To some, the photos are the equivalent of extending a middle finger to Hollywood. "He drives fast cars; he seems to always have a cadre of women around him -- but at every turn in this guy's life, he left a wake of destruction and incredible profitability for himself," says Jason Carbone, former co-executive producer of The Bachelor and The Bachelorette.

But those who have worked and played with Dotcom paint a slightly different picture: that of a fun-loving father of five whose appetite for fast cars and booze is matched by sharp intelligence and lofty business aspirations that fall more in line with, say, YouTube founders (and onetime alleged infringers) Chad Hurley and Steve Chen than a pirate flouting copyright law from a beach in St.-Tropez. "He's extremely smart, extremely driven," says Batal. "I think Hollywood can negotiate with someone like this. You don't put a guy like this behind bars; you say, 'This is what we need to work together.' "

The case is shaping up to be a pitched battle. Dotcom has pulled together a high-powered legal team including digital-rights expert Andrew Schapiro at Quinn Emanuel, signaling he is planning a vigorous defense. Already, New Zealand courts have granted Dotcom concessions, loosening the terms of his bail so he may use the Internet, swim in a nearby pool and visit a music studio to continue recording a hip-hop album. And a handful of procedural issues have given some the impression that authorities are bungling the case. At one point, it appeared New Zealand authorities could be forced to return all of the items they seized during the raid on "Dotcom Mansion." (On April 27, a New Zealand court ruled that two cars and about $250,000 should be returned, though the decision appeared unrelated to the clerical errors found in legal paperwork filed on the raid.) And allegations have been made that Megaupload has not been properly served criminal papers by the FBI. U.S. District Judge Liam O'Grady, who is overseeing the case, has even suggested that the procedural errors could jeopardize the ability to hold a trial.